Losses Chapter- 14
off the loss against the taxable income under any other head of income except salary income for the
year.
Where a person sustains a loss under a head of income for a tax year that cannot be set off the
person shall not be permitted to carry forward such loss to the next tax year.
Where, in a tax year, a person sustains a business loss and a loss under another head of income, the
loss under the head "Income from Business shall be set off last.- Set-off of losses of companies operating hotels [Section (56A)]
Where a public company as defined in the Companies Act, 2017 and registered in Pakistan, Gilgit
Baltistan or Azad Jammu and Kashmir (A J and K), operating hotels in Pakistan, Gilgit Baltistan or A J
and K, sustains a business loss in Pakistan, Gilgit Baaltistan or A J and K for any tax year shall be
entitled to have the amount of the loss to set off against the public company's income in Pakistan,
Gilgit Baltistan or A J and K.
Example: A public company is operating one hotel in Pakistan and second in Gilgit Baltistan and
third one in Azad Jammu and Kashmir. The turnover and profit and losses of respective hotels as per
tax are as under:
Hotel- 1 (Pakistan) Hotel- 2 (AJ and K) Hotel- 32 (GB)
Turnover 2,000,000 800,000 500,000
Taxable income 400,000 - 100,000
Loss as per tax - 200,000 -
Required: Compute the tax liability of the company.
Solution:
Computation of income:
Taxable income of hotel in Pakistan 400,000
Add: Taxable income of hotel 3 in AJ and K 100,000
Less: Loss of hotel 1 in AJ and K (200,000)
Total taxable income 300,000
Computation of tax liability:
Higher of:
Alternative Corporate tax i. e. accounting profit (Rs. 400,000 x 17%) 68,000
OR
Corporate tax u/s 113C:
Tax on Rs. 300,000 @ 29 % 87 , 000
OR
Tax on total turnover Rs. 3,300,000 @ 1. 25 % 41,250
As the tax payable under Corporate tax u/s 113C is higher hence than tax under
Alternative Corporate tax u/s 113C hence the same is to be paid by company 87 ,000- Carry forward of business losses (Section 57)
Where a person sustains a business loss for a tax year other than depreciation, amortization and
speculation loss and the loss cannot be wholly set off, so much of the loss that has not been set off
shall be carried forward to the following tax year and adjusted only against the person's taxable
business income for that year.
If a business loss sustained by a person for a tax year is not wholly set off then the amount of loss not
set off shall be carried forward to the following tax year and shall be carried forward for not more than
six immediately succeeding tax years.
Where a loss, referred to in sub-section (2) Relating !o a tax year commencing on or after the
First day,, of July, 2020 is sustained by a resident company engaged in the hotel business in
Pakistan the said loss shall be carried forward for a period of eight years.
Where a person has a business loss carried forward for more than one tax year, the loss of the
earliest tax year shall be set off first.